SBA Small Business Administration Loan

The SBA offer many programs to assist small businesses

Overview While the SBA Small Business Administration Department of the United States offers numerous loan programs to help small business owners, I will focus on two widely used real estate loans. Note: the SBA does not provide the loans to borrowers directly. Instead, the SBA guarantees the loan for the local lenders who fund the loans.

These two loan programs are the 7(a) Loan Guaranty and the Certified Development Company (CDC), a 504 Loan Program.

Types of businesses eligible The business must operate for profit, be engaged in, or propose to do business in the United States or its possessions; have reasonable owner equity to invest; and, use alternative financial resources first including personal assets.

Size of eligible business The definition of a small business actually varies from industry to industry to adequately reflect industry differences. The SBA has developed size standards defined by specific SIC codes. The lender will discuss these with you.

Program Basic 7(a) Loan Guaranty

This is the primary SBA business loan program to help small businesses obtain a loan when they might not be eligible for business loans through normal lending channels. It is a very flexible program for a variety of general business purposes.

Loan funds can be used for:

Working capital

Machinery and equipment

Furniture and fixtures

Land and building (including purchase, renovation and new construction)

Leasehold improvements

Debt refinancing (under special conditions)

Loan Features:

The maximum loan amount is $2 milion. However, the SBA only guarantees a maximum of 75% on loan amounts of up to $1 milion. For amounts of $150,000 or less, it guarantees a maximum of 85% of the loan amount.

Fixed and variable rates available.

Loan maturity is up to 7 years for working capital.

Loan maturity is up to 25 years for fixed assets.

SBA charges an annual servicing fee of about .50% on the amount guaranteed. It also charges a sliding-scale fee on new loans, ranging from 1% to 3.5% of the guaranteed portion of the loan amount.

Program Certified Development Company (CDC), a SBA 504 Loan Program

This program provides long-term, fixed-rate loans to small businesses to acquire real estate or machinery or equipment for expansion or modernization. Typically a 504 project includes a loan secured from a local lender with a senior loan, a loan secured from a CDC (funded by a 100% SBA-guaranteed debenture) with a junior lien covering up to 40% of the total cost, and a contribution of at least 10% equity from the borrower.

Three other SBA programs worthy of mention

1. LowDoc loan program The maximum loan amount is $150,000. This SBA commercial loan program shortens the application process to just one 2-sided document filled out between you and the lender. The SBA promises an answer within 36 hours. It guarantees up to 85% of the loan amount. Interest rate pricing is similar to that of the 7(a) loan-guarantee program.

2. SBA Express loan program The maximum loan amount is $250,000. The program also lets the borrower request an unsecured credit line of $25,000. The SBA has a streamlined approval process fro guarantees up to 50% of the loan amount.

3. CAPLines This program is actually 5 working capital loan programs that provide credit lines to small businesses. The maximum guaranty is for $1 million. Since the SBA guarantees 75% of the loan amount, the maximum implied loan amount is $1.33 million. Credit lines are offered for terms of up to 5 years.

Not all banks who offer SBA-guaranteed loans are created equal

While most banks, as well as certain commercial finance companies, offer SBA loans, there are two specialized categories you should know about...

Certified Lenders and Preferred Lenders

Both of these types of lenders have entered into contractual relationships with the SBA and officially participated in the Certified Lender/Partner Lender Programs (CLP/PLP).

About 850 lenders qualify for the Certified Lender Program representing about 4% of all SBA business-loan guarantees. Since the certified bank does much of the SBA's work, the agency offers quick turn times of 3 business days for processing the completed application.

About 450 lenders qualify for the Preferred Lender Program representing about 21% of the SBA loans. Preferred lenders have full lending authority and as a result can offer 1-day turn times on completed applications.

So when you apply at www.smallcommercialmortgageonline.com for your SBA loan, you'll receive competitive bids from certified or preferred lenders.